Requirements:

1.	Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment.
2.	Recommend whether the company should invest in this project.

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IRR dropdown choices:

a. 12-14% b. 14-16% c. 16-18% d. 18-20%

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Dropdown choices for formula: Average amount invested, average annual operating income, initial investment, present value of net cash inflows

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Choices:

Box 1: should, should not

Box 2: greater than, less than

Box 3: negative, positive

Box 4: greater than, less than

Box 5: greater than, less than

Water City is considering purchasing a water park in Atlanta, Georgia, for $1,870,000. The new facility will generate annual net cash inflows of $460,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 12% on investments of this nature. Requirement 1. Compute the payback, the ARR, the NPV, the IRR, and the profitability index of this investment. First, determine the formula and calculate payback. (Round your answer to one decimal place, X.X.) Amount invested Expected annual net cash inflow = Payback 1870000 . 460000 = 4.1 years Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent, X.X%.) Average annual operating income Amount invested ARR 1 = % Calculate the net present value (NPV). (Enter any factor amounts to three decimal places, X.XXX.) Net Cash Annuity PV Factor Present Years Inflow (i=12%, n=8) Value 1-8 Present value of annuity 0 Investment Net present value of the investment The IRR (internal rate of return) is between Finally, determine the formula and calculate the profitability index. (Round your answer to two decimal places, X.XX.) + Profitability index Requirement 2. Recommend whether the company should invest in this project. Recommendation: Water City invest in the project because the payback period is the operating life, one, and the ARR and IRR are the company's the NPV is the profitability index is required rate of return